asean economic community · asean economic community presentation for korean business community 7...

Baker & McKenzie.Wong & Leow is incorporated with limited liability and is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around

the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in

such a law firm. Similarly, reference to an "office" means an office of any such law firm.

© 2016 Baker & McKenzie.Wong & Leow

ASEAN Economic Community

Presentation for Korean Business Community 7 July 2016

Eugene Lim, Principal

+65 6434 2633

[email protected]

Baker & McKenzie.Wong & Leow

Agenda


1. What are businesses saying about the AEC?

2. What can Korean companies do to harness the benefits of the AEC?

AEC as the centre of global value chains

Accessing preferential market access for trade in services and

investment protection

Compliance

3. Q&A

Agenda

What are businesses saying

about the AEC?

© 2016 Baker & McKenzie.Wong & Leow 5

Re-drawing the ASEAN map

‒ Survey of 171 companies

‒ Wide range of sectors

‒ Senior executives with regional

responsibility

‒ Nearly half with manufacturing

plants in ASEAN

‒ 60% B2B 40% B2C

‒ 10 in-depth interviews with

business heads running

ASEAN


2013

Between

ASEAN FDI inflows

ASEAN’s economy could exceed

Home to nearly

Will ranks as

overtook China in

Annual average growth of

Will be the world's

ASEAN consumerism

Demographics are positive

US$4 by 2020

TRILLION (roughly that of

Germany in 2013)

and nearly 4 by

times

larger

2030

of the world's

population

5th LARGEST

ECONOMY BY 2018

5.6% for the

N E X T YEARS 5

More than double the USA, triple that of the EU

and hugely advantageous to

growth – young labour force.

2014 AND 2018 the region's labour force will expand

BY (adding 28m new workers). 1.7%

3rd LARGEST

EXPORTER 2018 BY

is set to grow

EXPONENTIALLY

Productivity is creating

a giant middle class.

Middle class households

2018 will more

than double 80m BY TO

Significant opportunities for

retailers, luxury market, manufacturers,

auto industry, IT industry, healthcare,

financial services and more

The ASEAN opportunity

Key findings


ASEAN - Structurally high growth

8

Trend rate of annual real economic growth 2013 to 2018 (%)

Source: Economist Intelligence Unit


ASEAN: Rising foreign direct investment

9

Value of foreign direct investment inflows (US$m)

Source: UNCTAD

ASEAN

China

India

Japan


If ASEAN were one country…

10

ASEAN’s share of global total (%)

Source: Economist Intelligence Unit


If ASEAN were one country…

11

First in the world Second in the world Third in the world Fourth in the world


Why ASEAN? From efficiency-seeking to market-seeking

12 Source: Economist Corporate Network survey of 171 multinational firms, July 2014

How important were these criteria in deciding to put manufacturing in ASEAN? (0= not important; 4 = extremely important)

Benefit for local and foreign

companies


Potential Impacts of the AEC

Supply chain optimization

Access to markets

An integrated production base

Greater mobility of skilled labour via mutual

recognition arrangements (MRAs)

Creation of a competitive economic region

Integration into global economy

Equitable economic development

Elimination of non-tariff barriers

Technical requirements and standards


Goods: Tariff Liberalization

15

Source : ASEAN Integration Monitoring Report 2013


Meaning… ASEAN: Manufacturing consolidation

16

Old model

Indonesia Malaysia

Indonesia

Thailand

Malaysia Thailand New

model

Source: Economist Corporate Network


ASEAN: Manufacturing fragmentation

17

Old model

Indonesia Malaysia Thailand

Malaysia Thailand

New model

Indonesia

Source: Economist Corporate Network


ASEAN: Shifting manufacturing landscape

18

Indonesia and Myanmar see manufacturing investment grow swiftly

Survey of 75 manufacturing firms: No of factories today and in 5 years’ time

Source: Economist Corporate Network survey of 171 multinational firms, July 2014


ASEAN: One strategy, despite the diversity

19

% of companies with a strategy oriented around the ASEAN region

Source: Economist Corporate Network survey of 171 multinational firms


Go to market: Local vs regional structures

20 Source: Economist Corporate Network

• Oversight & performance management

• Brand management • Decisions around portfolio of

products & services • Consumer marketing plans • Trade marketing plans • Manufacturing

ASEAN level

Country level

• Local deployment of regional marketing plans

• Sales activation • Driving distribution • Managing local relationships

ASEAN level

Country level

• Oversight & performance management • Brand management • Deploying global R&D base • Sharing global best practices, esp with

marketing

• Decisions around portfolio of products & services

• Consumer marketing plans • Trade marketing plans • Manufacturing • Sales activation • Driving distribution • Managing local relationships

Remaining difficulties


Barriers to integration

22 Source: Economist Corporate Network


Trade in services

‒ Limited integration few meaningful commitments

‒ But there are in some benefits

Indonesia (to ameliorate effects of negative list)

some benefits in healthcare sector in Thailand

‒ Foreign / non-ASEAN companies may need to

restructure to qualify for trade in services concessions

‒ Further concessions expected from further packages of

commitments?

ASEAN as the centre of

Global Value Chains


Tariff Reduction / Elimination

WTO CEPT ATIGA

ASEAN

MFN rate

ASEAN

0-5%

ASEAN

0%

Non-ASEAN

Origin

ASEAN Origin ASEAN Origin

2008-2009 2010-2011 2012-2013 2014-2015 2016 onward

Eliminate import

duties on products

in the Priority

Integration Sectors

for ASEAN-6.

Eliminate import duties on

all products (except

sensitive and highly

sensitive products) for

ASEAN-6; Reduce tariffs

on sensitive products to 0-

5% for ASEAN-6.

Reduce tariffs on

sensitive products

to 0-5% in

Vietnam.

Complete phase-in of

remaining sensitive

products into CEPT

scheme and reduce tariffs

to 0-5%:

-Lao and Myanmar in 2015

-Cambodia in 2017

-95.99% of tariff eliminated

by the end of 2015.

• Strengthen ATIGA

• Eliminate remaining

tariffs

• Negotiate priority

Product Specific

Rules of Origin

• Streamline origin

determination

processes


Non Tariff Barriers

Elimination of Non-Tariff Barriers

• List of NTBs collated and countries are formulating commitments to eliminate the NTBs

• Commitment of a standstill and roll-back on NTBs.

• Abiding the Protocol on Notification Procedure and setting up an effective Surveillance Mechanism.

• Fully eliminate NTBs by 2018.

Harmonization of Standards

• Mutual recognition of conformity assessment results.

• ASEAN Cosmetics Directive.

• ASEAN Electrical and Electronic Equipment Mutual Recognition Arrangements (“MRAs”).

• MRAs for accountancy, medical/dental, engineering, nursing and architectural services.

Others

• Self Certification Pilot Project to facilitate intra-ASEAN trade.

• ASEAN Harmonised Tariff Nomenclature.

• ASEAN Single Window (ASW)

• ASEAN Trade Facilitation Work Program

• ASEAN Trade Repository

• ASEAN Agreement on Customs

• ASEAN Framework Agreement on Facilitation of Goods in Transit

• ASEAN Framework Agreement on the Facilitation of Inter-State Transport

• ASEAN Framework Agreement on Multimodal Transport


Exploring Asia’s major regional trade initiatives

面


Implications for the Global Value Chain

‒ ASEAN is one of the most

connected regions in the

global.

AEC covers the region.

ASEAN+6 FTAs cover Australia

/ New Zealand, Japan, Korea,

India and China.

TPP provides connectivity to

North and South America and

some North Asian countries.

Numerous bilateral FTAs by

ASEAN countries and other

trading partners.

29

ASEAN

Preferential market access

for services & investment

protection


AFAS - Free Flow of Services

AFAS

1995

• Improving the efficiency and competitiveness of

ASEAN services industries.

• Diversify production capacity and supply; and

distribution of services.

• Elimination of barriers to trade in services:

• Limitations on market access

• Limitations on national treatment

• 9 packages of commitments concluded

• Discussion on ASEAN Trade in Services

Agreement (ATISA) – in progress


AFAS Services Sectors

1. Business Services / Professional Services

2. Communication Services

3. Construction and Related Engineering Services

4. Distribution Services

5. Educational Services

6. Environmental Services

7. Financial Services

8. Health Related and Social Services

9. Tourism and Travel Related Services

10. Recreational, Culture, and Sporting Services

11.Transport Services

12. Other Services not included elsewhere


AFAS - Free Flow of Services

Elimination of Limitations on Market Access

Services

Suppliers

1. Number of service suppliers.

2. Value of transactions or assets.

3. Total number of operations or

quantity of output.

4. Total number of natural persons.

5. Type of legal entity or JV.

6. Maximum foreign capital

participation.


34

AFAS 9th Package – Vietnam

No. Sample service sectors 8th Package 9th Package

1. • Residential and non-residential

property management services

• The services of leasing or rental

furniture and household appliances

Not included Included, no limitation

2. • interdisciplinary R&D

• R&D services on social sciences

• rental/leasing services without

operator relating to ships

Not included Included, 70% ASEAN

ownership permitted

3. • road freight transportation

• tourist theme park

• packaging services

49% or 59% ASEAN

ownership permitted

70% ASEAN ownership

permitted


35

AFAS 9th Package – Indonesia

No. Sample service sectors 8th Package 9th Package

1. Packaging services 49% ASEAN ownership

permitted

Eastern parts of

Indonesia: 70%

2. Nursing services East Indonesia region

(except in Makassar

and Manado): 49%

East Indonesia region

(except in Makassar and

Manado): 70%

3. Residential health facilities

services

51% 70%


ACIA - Free Flow of Investment

‒ ACIA aims for a free and open

investment regime which will

enhance ASEAN’s

competitiveness in attracting

FDI and intra-ASEAN

investment.

4 elements of ACIA

Inve

stm

en

t lib

era

lisa

tio

n

Inve

stm

en

t p

rote

ctio

n

Fa

cili

tatio

n a

nd

co

op

era

tio

n

Pro

mo

tio

n a

nd

a

wa

ren

ess


Investor-State Dispute Settlement

International arbitration options

• ICSID arbitration,

• ICSID Additional Facility Rules,

• UNCITRAL Arbitration Rules,

• SIAC,

• Regional Centre for Arbitration in Kuala Lumpur,

• Any other regional centre for arbitration in ASEAN, or

• If both parties agree, any other arbitral institution.

Key factors to demonstrate

• The existence of a breach by the responding ASEAN Party,

• The loss or damage incurred to the disputing investor, and

• The causal link between the above two elements.

37


Structuring FDI

‒ South Korean companies can

invest through a substantial

ASEAN subsidiary to the rest

of ASEAN

Access preferential market

access via AFAS

Protect investments via

ACIA

‒ Other considerations

Business environment

Legal system

Tax incentives

38

Korea Co.

SG Co.

AEC Co. AEC Co. AEC Co/s. AEC Co.

AEC Co. AEC Co. AEC Co/s.

Compliance


One Tip for Korean Companies

‒ The next trend: More post audits regarding trade compliance

‒ Compliance to be the top priority

Monitoring, Auditing and Response

Training and Communication

Standards and Controls

Risk Assessment

Leadership


Q&A

Baker & McKenzie.Wong & Leow is incorporated with limited liability and is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around

the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in

such a law firm. Similarly, reference to an "office" means an office of any such law firm.


ASEAN Economic Community

Presentation for Korean Business Community 7 July 2016

Eugene Lim, Principal

+65 6434 2633

[email protected]

Baker & McKenzie.Wong & Leow

asean economic community · asean economic community presentation for korean business community 7...

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